At the moment, UBS doesn’t see bitcoin as a threat to traditional banking. The two primary benefits of bitcoin, the paper notes, are disintermediation (removing the middleman) and lower fees.
For disintermediation, widespread bank insolvency and/or deposit taxes and levies could drive customers to use Bitcoin in lieu of traditional bank deposits. In the case of transaction fees, if Bitcoin transaction fees are consistently lower than existing fees, banks may see increased competition in this space. We do not regard either of these threats as real, given Bitcoin’s limited viability as a currency.
UBS does see significant potential in the technology behind bitcoin. While UBS dismisses bitcoin’s “broadly libertarian, internationalist agenda,” it notes that the design behind bitcoin could “provide a basis for a new shared payments and transfer system using existing currencies and securities.” What’s more, the report notes that bitcoin’s system appears to be superior to the current one.
Such a system could reduce systemic costs, and provide faster, secure, transfers – particularly in the international arena. However, given the status quo and the lack of any clear incentive for developing such a network, we do not see banks developing this any time soon.
As a result, UBS proposes that banks adopt the ideas behind bitcoin for their own “institutional” purposes. UBS proposes that a central bank-like authority would be needed to stabilize the value, and that “keeping track of users” is important to reduce fraud. If this sounds like UBS wants to take bitcoin’s innovations while standing in direct opposition to bitcoin’s design, that’s because they are.
Ultimately, an institutionalised, technologically different digital currency may no longer be Bitcoin with a capital ‘B’. Indeed, we are sceptical on the need for a new true currency, but we see potential for Bitcoin as the foundations of a new payment system.
The report goes on to speculate that bitcoin is already primed to take a sizable market share in international money transfers, and could eventually out-price Visa and MasterCard as a payment system. There is also a brief discussion of bitcoin alternatives, such as Litecoin or Dogecoin, but the overall sense is that bitcoin’s fundamental promise of revolutionizing the world’s monetary system isn’t as promising as simply diverting it’s innovations to support that system.